The problem is that while a given firm can try to convince customers to accept higher prices in exchange for higher wages, in the economy as a whole this isn’t a matter of persuading anyone to accept anything. The Federal Reserve prevents the price level from rising more than 2 percent per year. The Fed is open to the idea that price increases driven by temporary fluctuations in global commodities should be ignored, but the Fed deems price increases driven by higher wages to be especially alarming. So higher wages have to be processed as some combination of lower profits (which is fine at a time of record profits) and reduced employment (which is not so fine at a time of high unemployment).

On the other hand, at a time of high employment and incipient inflation, everyone would agree that a hike in the minimum wage would just push prices up, which in turn would prod the Fed to tighten more sharply – which in turn would throttle economic growth. Right? Why would a higher minimum wage not backfire in a tight labor market if you’ve got a Fed-centric view of what makes the economy function?

Yglesias suggests at the end that a higher minimum wage might make sense in current market conditions, but only in tandem with a looser money policy. But if he really what he said earlier in the post, then this isn’t correct. If the Fed announced a 3% inflation target, that wouldn’t mean wage hikes no longer “counted” towards that target. A hike in the minimum wage would still, at the margins, make the Fed more inclined to tighten sooner, and hence would be counterproductive. Isn’t that Yglesias’s point?

I think Yglesias has just signed on to the basic conservative case against the minimum wage: that all a higher minimum wage does is increase unemployment and reduce economic growth.

The case for the minimum wage depends on the case for redistribution, a case I think Yglesias agrees with. It starts with an argument that labor is at a bargaining disadvantage vis-a-vis capital in current market conditions, and therefore wages are lower than they might optimally be. It proceeds to argue that wage subsidies, under weak labor market conditions, will be pocketed by capital and/or consumers – the dominant effect will be to hold down pre-subsidy wages. Ron Unz made the case for a substantial hike in the minimum wage here; I won’t repeat his work.

But the point is this. If you hike the minimum wage, one of three things has to happen. Either businesses hike prices to compensate – and you get an increase in inflation. Or the return to capital – profits – drops to compensate – which will, at the margins, encourage capital to move overseas for higher profits. Or businesses have to innovate to figure out how to pay the higher wages without sacrificing profits. But the first option – hiking prices – is only an option if demand is high. If demand is slack – as currently – it’s not. And therefore you need worry much less about the Fed reacting negatively to counteract the effect of a hike in the minimum wage than you would in tight labor market conditions.

As for the two other possible responses – lower profits and/or innovation – yes, they could raise unemployment, but by how much? Innovation could simply mean moving jobs offshore – but that’s not an option for home health aids or construction workers. Lower profits could result in a shortage of capital for investment – but we’re currently many years into an investment glut. And there’s always the possibility that innovation doesn’t just mean moving jobs offshore – it could mean genuine increases in productivity, which make us all wealthier, but in this case the increase would have been “pre-captured” by labor in the form of higher wages rather than, as has been the case over the past generation, being captured by capital in the form of higher profits and by the health-care sector in the form of higher insurance costs. (In fact, there’s evidence that a weak labor market discourages innovation to raise labor productivity precisely because it makes such innovation unnecessary. So it’s not completely nuts to think that a hike in the minimum wage might spur some useful innovation at the low end of the skill scale.)

Meanwhile, the rise in wages at the low end should result in a spike in demand, which would boost nominal growth and therefore result in lower unemployment. I’m not in a position to do the math to figure out which effect would predominate – and neither is Yglesias – but if you simply assume the effect on demand from redistribution is zero then you’re assuming part of the case against raising the minimum wage from the beginning, which is what the conservative case against does.

Is that Yglesias’s view as well?

I know Yglesias thinks it’s really, really important for the Fed to be looser. But that’s not the only policy lever in the universe. Why piss on all the others?

And besides, common sense would show that more money = better. I know, the argument is that fewer people would be hired. But even if that’s true, I’d much rather one person make a living wage than two people live on sub-subsistence wages.

“Economists agree that the minimum wage is bad for poor people.” should read “Economists whom Mogden finds congenial agree that the minimum wage is bad for poor people.” To the best of my knowledge, economists are as divided on the net effects of minimum wage laws as they are on anything else.

Further, in the year 2013, anybody who tries to start an appeal to authority argument with “economists agree” has shot off his own feet with his opening clause. Economics and economists are a long, long way from authoritative.

How is the minimu wage bad for poor people and which economists? Is the minimum wage bad for poor people because it has severly eroded due to inflation and is less than it was in adjusted dollars than in 1968? I would agree to that statement. I have yet to see any actual data to back up the bumper sticker economic belief that the minimum wage causes un or underemployment. If conservatives want to win back the middle or lower classes, they need to address, in real terms, the divergence of GDP/Production with Household income. This is the statement in the article that I believe bests sums this divergence up:
“being captured by capital in the form of higher profits and by the health-care sector in the form of higher insurance costs”. I don’t know if raising the minimum wage is the complete answer, I doubt it is. That said, it should certainly be raised with respect to inflation to at least catch us back up to the late 60’s.

I’m starting to think that Economists can find any action at all bad for poor people. Welfare makes them lazy. Lump sum features like the EIP gets lost instantly into paying past due balances and the occasional iproduct. Training is inefficient if it’s government.

Meanwhile, though, I don’t buy into letting market forces handle the situation. We constantly state how businesses are outsourcing their jobs to places such as China. However, is anyone able to argue that having Chinese style factories and cities are exactly the lifestyle we want the US poor to have? If not then what would be the poor’s benefit to removing the elements that keep US companies from running like Chinese ones?

If every policy is ‘bad for the poor’ then what option, beyond the Social Darwinian, is left? Without an answer, we’re left to state that the best of the worst solutions is either minimum wage or welfare (or a combination of the two).

I think the interesting part of this is the idea that capital will flee necessarily because it necessarily can find higher profits elsewhere. But it cannot. One of the things that’s going on right now is that capital is flowing into the United States because as bad as things are here they’re worse elsewhere.

We need not with the “race to the bottom,” and that race serves no-one well, not even capital.

Raising the minimum wage is not a constantly good thing, but currently demand is low because disposable income is low, and our options to stimulate are to further lower the costs of everything, or to raise incomes. As we are very near the tipping point to deflation, raising incomes seems more prudent. Waiting for the market to do that on its own is like waiting for Godot….

Probably the new reality of higher minimum wage, is companies are going to more aggressive about cutting hours. Since most (or near) minimum wage jobs are food service or retail sectors. The hour control has already been happening for 10+ years and Obamacare is going to accelerate this trend. Overall I don’t like it but the world is going adjust until Chinese/India labor is closer to the US wages. (The Lewis point is coming and already hit several sectors.) I do believe it is terrible that a hard working person can’t make a living wage but that is price of competition. (I starting to sound like Casey Mulligan.)

Lastly, any thoughts on minimum wage (exemptions) for teenage workers. The teenage labor participation has dropped a lot the last five years (and 30 years as well) and is this a good thing?

One thing about the idea of minimum wages causing hour control is that it might NOT be a bad idea.

If we take an extreme example, let’s say that raising the minimum from $7 to $14 effectively causes everyone to drop everyone from 30 hours to 15 hours.

Now let’s present the question? Would you rather work $7 for 30 hours or $14 at 15 hours?

yes, realistically, that’s insane and won’t actually happen. This just helps prove the concept that hourly controls are far from a negative thing from the worker’s standpoint if we’re talking the same wage at fewer hours.

It beats the current trend of same wages-lower hours.

Meanwhile, I never heard of the Lewis trend before now but just looked it up. I do believe China, overall, has hit that point. We’re already seeing the worker vs business battles that filled the US decades ago. They would probably already have unions if the government wasn’t cracking down. On the other hand, the US worker force didn’t have Web 2.0 which changes the entire dynamic.

don’t think that’ll solve the issue. India, I don’t think, has hit the point yet and companies are leaving china to go to Vietnam and other countries. I believe once hit the Lewis point, they’ll move on. I imagine once we hear of labor strikes in African factories then the era of cheap labor will be deemed over.

I think this is a good example of how formerly distinctive liberal bloggers like Ezra Klein and Matt Yglesias have become tamed, wonkified, and housebroken. They have learned, as they become more successful, to speak in terms that don’t threaten the elites, what the Chinese call self-censorship. This follow-the-money instinct seems to afflict thinkers of every stripe, conservative, liberal, libertarian. Paleocons seem to be at least somewhat resistant to this virus, which is why I like them despite agreeing with them about so little…

Bigger pay checks mean more revenue for the government and less welfare. Bigger pay checks mean more money circulating in the local economy. Productivity has been going up in the last thirty years but workers have been shut out of the increase. Personally, I feel that any business that can’t pay minimum wage should be put out of its misery.

Americans have been misled to believe that what is good for the Bull Moose is good for the nation. We are told that the ruling class “creates” jobs and “gives” them to us and we should be grateful and not quibble about the wage.

If the powers that be wanted a return to a consumer economy we would see some protectionism and pro-labor legislation and yes, an increase in the minimum wage. But said powers seem intent on reducing us all to serfdom. Reduce entitlements and increase corporate welfare. Outsource everything, import cheep labor and drive down wages. Allow universal extortion via the health insurance parasites to further impoverish workers. Squander trillions on Imperial aggression all over the world.

Prosperity will never return to this country as long as the government is owned and operated by the banking cartel and international monopolists. We prospered under regulated Capitalism. De-regulation at the behest of Wall Street killed Capitalism, corrupted the government and created what we have now. Central Planning. And the people doing the planning don’t need us.

No new combination of Democrats and Republicans will change this situation. The legacy parties will stay bought. I don’t know the way forward but I know that the Democrats and Republicans and their owners, the planners, are an obstacle to it.

you speak as if there’s a widespread public support towards a high minimum wage and the government is simply ignoring it. Sadly, that’s not the case here.

There was no majority outcry when wall street was being given it’s bailout. Some hated it, but some supported it. The organized push against it started with the Tea Party well over a year later who held that message for probably about a few months before they morphed within the Republican party. Note that they are VERY vocally against an increased minimum wage.

OWS would probably be supportive of a higher minimum wage. However, I state ‘probably’ since their grandiose demonstration hasn’t publicly translated into actual policy stances like the TP did.

The result is a lack of organized ground support for the policies you mention. Even the bail outs, which easily get negative marks from the majority, become nothing more than a regular grumble similar to how we complain about lousy drivers.

In contrast, when a deep push for something occurs the government responds. The public actually pushed for a minimum wage hike in 2006. Democrats promised they will deliver. We voted and we got it. Same goes for when the public demanded gridlock on Obama’s agenda in 2010. Republicans promised, we voted, we got it in spades.

“But the Elites and corporate masterminds…” will ALWAYS win. Walmart has been known to advocate for the minimum wage. They do so because they know they can afford paying more better than the competition, but don’t want to be stuck paying $10/hr while others pay $7/hr and gain an advantage. If the wage hike goes in, Walmart suffers a bit while they get to see other businesses shut down under the stress.

Point in that story is this: no matter what government does, some elite will win against the other elites. Bah, some elites are flexible enough to gain an advantage no matter what government does.

The minimum wage hasn’t risen further because a large number of regular public rejects it: not majority but enough. Welfare still exists because there’s too much support to kill it. Same for the ACA, which came to birth via public demand of health care in 2008, became warped and watered down that same year when the public turned on it, then was saved by the public in 2012.

Yes, lobbying warps and politicians do what they want to do, but we, as an overall public, has still gotten what we agreed on. YOU may not ( I know I haven’t) but policy the public organized to agree on was added. Policy the public hated was watered down or removed. Policy the public can’t pull the energy to really scream about together grow wild like weeds.

We haven’t really HAD a case of outright rebellion against public demand that resulted in the government winning. The worst we had is Elite groups convincing the public to accept a particular stance, but, to be blunt, if a used car company convinced you to buy a can you know stinks, then it’ still your fault for buying it. This is 2013: you have no excuse to rely on CNN or FOX. That most of the country does is less an example of government authority and more an example of the public self-sheeping themselves.

If all of that is too long, the basic statement is this: despite the Elites, the bribes, and the government secrecy, we, the public, still get just the country we ask for in the end. We voted for all of this, and got what we rioted for, killed what we wanted killed, and allowed what we didn’t care to fight for. This is the Public’s cake we got, and we’re eating plenty of it.

1) Actually there are a lot nasty strikes going on in South Africa and other African nations for mining workers. (They are almost to the old Flint sit down strikes. Although it is a very biased site, Al Jazzera has very good reporting on these.) I don’t think factory jobs are not going to Africa because it is natarul resource center and Chinese investment is huge.

2) The joke on the US worker is if we could magically elmininate 1M Chinese factory jobs, that means the US jobs would increase 100K and there would be another 900K robots created. Long term automation will continue to take jobs. How long do taxi drivers (~10 years) have, with Google’s driverless cars.

3) The one reason China may break the Lewis (such as Japan and Korea did) is there is no 1 B+ countries behind them. Sure sweatshops will go to Vietnam and Bangledesh, but they can not replace all Chinese economy for workers. Also, the Chinese government has a strong enough hold on the economy that can mitigate a mild financial crisis. (Much like the Reagan era S&L crisis was managed)

4) In terms of development economics read Paul Krugman’s 1994 economic developmen from Foreign Affairs. Although he is not popular on this site, it really is an excellent start to understand of development economics. Then go to Marginal Revolution blog.

AlbuterolGonzales
Define subsistence, because unless you are talking about people scavenging for food in the wilderness, in America subsistence is what is wealthy in other countries, and then people like you wonder why hiring Americans is not the preferred choice for a lot of business.

Right now the government is surreptitiously increasing the minimum wage by way of the Earned Income Tax Credit which mostly goes to single moms and could amount to $4,000 at the end of the year. Increasing the minimum wage would lead most food service businesses to increase their prices and their customers would accept this. Increasing the minimum wage would reduce the Earned Income Tax Credit and lead to a better life for low wage earners.

Assuming all 1.7M are working full time (they’re not), that’s an extra $9.7B the economy has to fork out for cheeseburgers and cab rides. I fail to see how it matters to anyone, except the 1.7M who don’t make much money. They fritter away $90B a year in the Department of Education; an organization that didn’t even exist in 1978, back when education didn’t suck as much as it p resently does. Let the burger flippers have a few more bucks; it can’t hurt anything.